Rep. Paul’s call for federal audit on right track

Texas Republican Rep. Ron Paul has used his newfound prominence (coupled with deep concern over the ongoing financial crisis) to push for a measure that has long been close to his heart.

Paul, whose spirited campaign for the Republican presidential nomination last year elicited a great deal of enthusiasm and intensity but not nearly enough votes, has introduced HR 1207 — a bill to direct the Government Accountability Office to audit the Federal Reserve System.

The bill has attracted more than 200 co-sponsors, ranging from minority leader John Boehner to Michigan Rep. John Conyers, one of the House’s most liberal members.

Given the emerging consensus that the Fed’s monetary manipulation in the early 2000s was a significant contributor to the housing bubble that led to the financial meltdown — and proposals backed up by heavy behind-the-scenes lobbying by Fed chairman Ben Bernanke to increase the Fed’s power rather than cut it down to size — an audit would be especially appropriate.

The Federal Reserve, with its control over the money supply, its ability to create money out of thin air, and its ability to enter into agreements with foreign central banks, is simultaneously one of the key players in the U.S. economy and one of the least transparent entities in the government.

Over the last two years, in response to the crisis, the Fed has almost tripled its balance sheet to $2.3 trillion, largely through its bailouts of AIG and Bear Stearns and the creation of 14 new lending programs.

Combined with all the additional spending President Obama and Congress have authorized, the potential for significant inflation in the near future is obvious.

The argument for the relative secrecy within which the Fed operates is that the agency must maintain its independence from short-term political pressure and that too much knowledge of the Fed’s inner workings might induce public panic. But simply auditing the Fed would not compromise its formal independence, and operations in secrecy have already induced a crisis approaching panic.

It’s better for the American people to face the future with as complete knowledge as possible about what government institutions are doing on our behalf.

Whether an honest audit of the Federal Reserve would raise questions about whether the United States really needs a central bank with the kind of power the Fed currently enjoys — as Rep Paul no doubt hopes — is a question for another day. For now, auditing the Fed is an idea whose time has come.